The shares of listed real estate companies are an elegant way to make indirect investments in real estate. Nevertheless, such investments can also be very complex. Our FAQ section provides answers to the most important and frequently asked questions about real estate shares, the advantages of investing in real estate shares, and the investment strategies of AVENTOS Capital Markets (ACM) and the AVENTOS Global Real Estate Securities real estate equity fund.
What are listed real estate companies?
Listed real estate companies are joint-stock companies whose sole objective is to invest in, hold, develop and manage real estate. Accordingly, current income is generated almost exclusively from renting and leasing the respective properties.
How many listed real estate companies are there worldwide and how large is the market?
There are currently more than 3,000 listed real estate companies worldwide with a total market capitalisation of more than EUR 3 trillion. This corresponds to about twelve percent of total global real estate assets.
What are REITs?
Real Estate Investment Trusts (REITs) are a special form of real estate corporation that are common in many countries around the world. In order to obtain REIT status, companies in Germany, must, for example, generate at least 75 percent of their income from renting out real estate, have invested at least 75 percent of their funds in real estate assets and distribute at least 90 percent of their annual net profits to investors as dividends. Another key feature is that the profits generated by the REIT are not taxed on the corporate side. Similar rules apply in other countries.
What is the difference between listed real estate companies and real estate funds?
Real estate funds are entrepreneurial investments in limited partnerships (closed-end funds) or special funds (open-end funds). Fund units can only be traded to a limited extent: closed-end real estate funds have fixed terms, and there is no provision for selling units during this fixed term. In the case of open-end real estate funds, fund units can only be redeemed subject to minimum holding and notice periods and potential redemption discounts. Open-market trading only takes place for very large open-end funds via an unregulated secondary market. Listed real estate shares, on the other hand, are liquid securities that can be bought and sold on any trading day.
Aren’t real estate shares much more volatile than other forms of real estate investment?
Like all listed shares, the value of real estate shares can also be influenced by capital market fluctuations, while real estate assets are valued by experts at regular intervals on a reporting date basis. In this respect, much of the volatility of these investments are simply not visible to the market, as there is no regular trading. However, long-term analysis reveals that real estate share prices correlate more closely with the development of real estate markets than they do with movements of the stock markets.1
1 Martin Hoesli, Elias Oikarinen: “Does Listed Real Estate Behave Like Direkt Real Estate?“, EPRA 2019: https://prodapp.epra.com/media/Does_listed_real_estate_behave_like_direct_real_estate_updated_and_broader_evidence_1579519010027.pdf
In which countries and real estate asset classes are listed real estate companies particularly strongly represented?
The lion’s share of the market capitalisation of listed real estate companies is in Asia/Pacific (44 percent) and North America (39 percent), overwhelmingly in the USA. Europe plays a relatively minor role (16 percent). Taking the MSCI World Real Estate Index as a benchmark, around 30 percent of market capitalisation at the end of 2020 was attributable to special-purpose real estate (transmission towers, data centres, etc.), followed by logistics/industrial properties at 11%. Office properties registered a share of just 10%.
Are there also indices that track listed real estate shares – and index funds that track these indices (ETFs)?
There are specialised real estate share and REIT indices, including indices from MSCI, S&P and Dow Jones, which can provide a benchmark. Some ETF providers have also launched corresponding index funds. However, AVENTOS Capital Markets has adopted an investment approach designed to outperform these indices thanks to its own active stock selection. Existing real estate ETFs continue to weight their individual positions according to market capitalisation, and thus tend to buy expensive stocks and sell stocks that have fallen in price.
How have returns on real estate shares developed compared to other asset classes?
Any comparison between equity submarkets always depends on the period you choose to analyse. On average over the past five years until the end of 2020, for example, REITs slightly outperformed a broadly diversified European equity portfolio. Compared to real estate funds, in contrast, REITs have performed six times better over the past 20 years.
Could buying shares have an impact on the share price? What volume of shares would you have to buy to move the price?
Whether buying shares has an impact on the share price primarily depends on the scale of the investment in relation to a company’s total market capitalisation, the free float and the daily trading volume. There is simply no one-size-fits-all answer to this question. However, in the case of highly liquid shares in blue-chip companies, a single investor will only have a significant impact on the company’s share proice in exceptional cases. However, AVENTOS Capital Markets only invests in stocks with sufficient market capitalisation and good tradability.
In our whitepaper you will find more information about our approach.
On the following pages, we offer you, as a contractually bound intermediary pursuant to Section 2 (10) of the German Banking Act (KWG), for the account and under the liability of NFS Netfonds Financial Service GmbH, Heidenkampsweg 73, 20097 Hamburg (NFS), investment advisory services and investment brokerage (Section 1 (1a) Sentence 2 Nos. 1 and 1a KWG) of financial instruments within the meaning of Section 1 (11) KWG. NFS is a financial services institution and has the necessary permits from the German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht - BaFin). For further information please refer to our imprint.